GRAT: How Do I Turn Growth Into A Gift?
Grantor Retained Annuity Trust (GRAT)
One of the most effective ways to transfer appreciating assets to family members with minimal gift or estate tax exposure.
A Grantor Retained Annuity Trust, or GRAT, is one of the most effective ways to transfer appreciating assets to family members with minimal gift or estate tax exposure. It’s also one of the more elegant financial planning tools.
Here’s how it works: you transfer assets (like stock, real estate, or business interests) into the GRAT and retain the right to receive fixed payments for a set number of years. When the term ends, any remaining growth that exceeds the IRS’s assumed rate passes to your beneficiaries, typically tax-free.
It’s a simple concept with powerful results: By “freezing” the taxable value of your assets today and shifting future appreciation out of your estate, you can efficiently and strategically transfer significant wealth to the next generation. GRATs have their own set of nuances, including timing, interest rates, and even longevity considerations. But when structured correctly, they can turn ordinary growth into a tax-free gift.
Interested in learning how a GRAT could fit into your wealth transfer strategy? Contact your Composition Wealth Advisor Team to explore whether this planning style could work for you.
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